China in the Pacific: the new banker in town

• Mary Fifita, Fergus Hanson
• Lowy Institute for International Policy

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07 April 2011In light of the continued diplomatic truce with Taiwan, this paper reassesses the drivers of China’s engagement in the Pacific, examines trends in China’s aid giving and associated concerns, as well as survey results of China’s follow-through on aid delivery since 2005.

This is the fourth in a series of Lowy Institute reports on China’s aid program in the Pacific. They now cover the five-year period 2005-2009, offering the most detailed picture available of China’s activities in the region. China has been increasing the loan to grant ratio of its aid and has now pledged over $US600 million to Pacific states. In Tonga, pledged loans from China equate to one third of its GDP.

This paper examines Chinese aid activities in the Pacific region for calendar year 2009 and draws on data gathered since 2005. It concludes with some suggestions, including:

• At this stage, China appears confident in its aid program and sensitive to analysis of it. In this atmosphere, the success of other countries’ efforts to encourage improvements in China’s approach is likely to be limited. Nonetheless, some modest efforts are worth pursuing over the long term.

• AusAID and other major donors should continue to try to engage China in joint projects. They should begin a discussion with China and Pacific governments on debt burdening.

• Pacific governments should report aid flows from all sources, including China. They should continue to urge China to improve the use of local labourers, contractors and, where possible, materials in its aid projects, and push it to coordinate its aid activities consistent with the Cairns Compact.